The 2023 North Atlantic hurricane season got off to an unusually early start, with an unnamed subtropical storm off the north-eastern coast of the U.S. in January – well before the hurricane season’s official start date of June 1.

By Nov. 23, the 2023 season had witnessed 20 named storms, six more than the average pre-season forecasts expected. 2023 had the fourth-highest total of named storms in a year since 1950, according to the National Oceanic and Atmospheric Administration (NOAA). Of these, seven intensified into hurricanes, with three escalating to major hurricane status: Lee (Category 5), Franklin (Category 4) and Idalia (a Category 4 hurricane that was Category 3 upon landfall).

A season of “fish storms”? 

Only eight storms have made landfall so far in 2023, and only tropical storms Harold and Ophelia and Hurricane Idalia made landfall in the U.S. This has led to most storms being referred to as “fish storms” – storms that pose virtually no risk to land but can be a threat to boats and ships and produce dangerous currents along the coast.

Hurricane Franklin was the first major hurricane of the 2023 Atlantic hurricane season. It made landfall as a tropical storm on the southern coast of the Dominican Republic and triggered heavy rainfall and destructive winds. After passing the Dominican Republic, it intensified into a Category 4 hurricane on the high seas.

In late August, Hurricane Idalia made landfall in Florida’s Big Bend region (where the narrow Florida Panhandle merges into the wider Florida peninsula) as a Category 3 storm, becoming the first major hurricane to make landfall in that area since record-keeping began in 1842. 

At peak season in early September, the massive and expansive Category 1 Hurricane Lee threatened to hit the eastern coast of the U.S. and Canada. A long-lived storm, Lee underwent a remarkable transformation, intensifying from a Category 1 to a Category 5 storm in just 24 hours. However, it quickly weakened and became an extratropical storm before making landfall in Nova Scotia as a Category 1 storm, then moving out into the far northern Atlantic.

Lee’s extratropical phase brought rain and gale-force winds to parts of the U.K. and Ireland. Meanwhile, swells generated by the storm triggered dangerous surf and rip currents along the entire Atlantic coast of the U.S. Aon estimates economic losses due to Hurricane Lee to be around $50 million.

See also: Key Learnings From Winter Storms

How did the 2023 season compare with the forecasts?

Contrary to pre-season predictions of a near-average season, the 2023 Atlantic hurricane season turned out to be above average, with Hurricane Idalia making it to the list of costliest Atlantic hurricanes in recorded history.

El Niño, a natural climate pattern associated with warmer-than-average sea surface temperatures (SSTs) in the central and eastern tropical Pacific Ocean, typically casts a dampening effect on Atlantic hurricane activity. This is because El Niño can increase wind shear, a disruptive force that can hinder hurricane formation and intensification. However, the 2023 Atlantic hurricane season has defied this El Niño-induced suppression, producing an unusually high number of named storms. This can be attributed to exceptionally warm SST anomalies recorded in the north Atlantic Ocean. These record-breaking SSTs were caused by a combination of short-term anomalous circulation in the atmosphere and longer-term changes in the ocean.

The complex interplay of these contrasting climate signals made it difficult for forecasters to accurately predict the activity of the 2023 hurricane season. Forecasting institutions were faced with the challenge of balancing the typically hurricane-suppressing effects of El Niño with the potent hurricane-fueling conditions created by the warm Atlantic waters.

Midway through the season, forecasting bodies such as the NOAA and National Hurricane Center revised their predictions, indicating that the season would be more active than previously anticipated.

Comparison of the 2023 North Atlantic hurricane season storms to the pre-season forecast averages, mid-season averages of AccuWeather, Colorado State University (CSU), Tropical Storm Risk (TSR), National Oceanic and Atmospheric Administration (NOAA) and North Carolina State University (NCSU) and 2022 season actuals.
Source data: National Hurricane Center. Graphics by Allianz Commercial

Deep dive: Hurricane Idalia

On Aug. 30, Hurricane Idalia made landfall along the Florida coast, unleashing its fury on the Big Bend region. The system briefly attained a Category 4 status on its approach to Florida, but its intensity waned to maximum sustained wind speeds of 201km/h (125 mph) before it made a destructive landfall as a Category 3 hurricane near Keaton Beach, Florida. Despite a gradual weakening after landfall, Idalia’s initial intensity and rapid forward speed propelled it across northern Florida and into southern Georgia within a mere nine hours, maintaining hurricane strength throughout its path.

Idalia unleashed catastrophic storm surges with inundation levels in coastal areas ranging from 2 to 3.7 meters (7 to 12 feet). These surges were among the highest recorded since the 1993 Storm of the Century, leaving a trail of destruction along the coast.

Heavy rainfall also accompanied Idalia, leading to flash flooding in some areas. The storm’s impact extended beyond Florida, with heavy rainfall and strong winds affecting Georgia. As Idalia weakened further, it continued into southern South Carolina, where it still posed a significant threat as a tropical storm.

Moody’s RMS estimates insured losses from Hurricane Idalia to range between $3 billion and $5 billion, with a best estimate of $3.5 billion. Additionally, Moody’s RMS anticipates the National Flood Insurance Program (NFIP) could incur losses of around $500million. It expects the U.S. private market insured losses to be driven by wind, while storm surge and flood could contribute to around 40% of total private market losses and around 30% of the total event losses (including NFIP). Moody's RMS estimates most private market insured losses (around 70%) and NFIP losses (around 90% to 95%) from Idalia to be in Florida.

Even though losses from Idalia surpassed the billion-dollar mark, two factors may have helped mitigate its impact. First, the landfall area has a significantly lower population and exposure density compared with much of Florida. Second, Idalia had a relatively small wind field, which helped reduce the spatial extent of wind-induced damages. However, some of this mitigation was counteracted by the greater vulnerability of the properties in the region, which were mostly built during the 1980s and 1990s, before modern building codes were implemented. 

See also: Glimmers of Good News on Climate (Finally)

Where are we now?

The Atlantic hurricane season has officially ended (on Nov. 30), having had notable impacts on several regions. The impact of Hurricane Idalia, particularly its storm surge and floods (both pluvial and fluvial), underscores the urgent need to accurately model and incorporate secondary perils into probabilistic catastrophe models. The increasing relevance of these perils due to climate change necessitates further research and development in secondary peril modeling to fully assess and mitigate disaster risks. While advancements in these models have been significant, adequately capturing the complexity and potential impact of secondary perils remains a challenge. 

The information within this article is based on the preliminary operational data and tropical cyclone reports available on various sources as of Nov. 23, 2023. Tropical cyclone reports for several storms have yet to be released and may adjust storm parameters based on reanalysis.

KEY TAKEAWAYS:

--Parametric insurance allows for a greater web of protection beyond asset owners -- perhaps a government-funded index for, say, the urban poor who depend on a certain crop for their sustenance.

--With payouts based on specific wind speeds or rainfall amounts, property owners can quickly recover from damages, alleviating the long wait times and uncertainties associated with traditional claims processes.

--For businesses, particularly those dependent on complex supply chains, parametric coverage offers a way to mitigate the financial impact of unpredictable climatic events by making it possible for a company to receive a payout if a key region is hit by a natural disaster.

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Consider this: In the fall of 2022, a drought blanketed southwestern China, bringing many industries to a standstill. The drought led to a severe reduction in the country’s hydropower, which, in turn, spurred factory blackouts that curtailed electronics production. The contraction of the electronics market led to a slowing in automobile production and other electronic goods, which caused prices to soar worldwide. Moreover, the drought caused the water levels of parts of China's great Yangtze River to fall so low they hampered water transportation. According to the New York Times, the problem with water transportation caused: 

"Companies… to scramble to secure trucks to move their goods to Chinese ports, while China’s food importers hunted for more trucks and trains to carry their cargo into the country’s interior. The heat and drought have wilted many of the vegetables in southwestern China, causing prices to nearly double, and have made it hard for the surviving pigs and poultry to put on weight, driving up meat prices."

This year, a drought caused a similar throttling of hydropower production in Taiwan that reduced semiconductor production. This was the third year in a row that a record-shattering drought gripped the world’s main supplier of semiconductors; and it was the third consecutive year that the Taiwanese government subsidized rice farmers in the southern part of the country for not planting crops because of limited water resources.        

As we draw a curtain on 2023 – which featured the hottest summer on record – the world confronts an unprecedented challenge arising from climate change's domino effect. Beyond environmental degradation, drastically changing climate patterns affect everything from human and animal well-being to the connected global economy and its supporting supply chains. 

See also: Property Underwriting for Extreme Weather

The Health Emergency of Climate Change

Climate change, often perceived primarily as an environmental issue, has emerged as a dire public health emergency. The World Health Organization, in its report "Climate Change," paints a grim picture: By 2030, climate change is expected to cause 250,000 additional deaths annually due to diseases like undernutrition, malaria, diarrhea and heat stress. These figures only scratch the surface of a deeper crisis where the very determinants of health – clean air, water and food systems – are under siege. The report states:  

"WHO data indicates 2 billion people lack safe drinking water and 600 million suffer from foodborne illnesses annually, with children under five bearing 30% of foodborne fatalities. Climate stressors heighten waterborne and foodborne disease risks. In 2020, 770 million faced hunger, predominantly in Africa and Asia. Climate change affects food availability, quality and diversity, exacerbating food and nutrition crises."

The Disproportionate Burden on Vulnerable Populations

The outsized impact of climate change on low-income populations will continue to spur migratory crises that strain sociopolitical systems worldwide. The International Federation of Red Cross and Red Crescent Societies issued a report, “The Cost of Doing Nothing: The Humanitarian Cost of Climate Change and How it Can Be Avoided,” that states, “By 2050, 200 million people every year could need international humanitarian aid as a result of a cruel combination of climate-related disasters and the socioeconomic impact of climate change.”

The report also says:

"Today, resources are already insufficient to provide fundamental support to everyone who needs assistance after climate-related disasters. Depending on the amount of support provided and the source of cost estimates, meeting current needs costs international funders $3.5 billion to $12 billion annually. By 2030, this funding requirement could balloon to $20 billion annually."

If we truly want to roll back income inequality, we must prioritize climate change mitigation, because the cost of doing nothing is exorbitant indeed. 

A Crisis in American Homeownership

The world’s most economically vulnerable citizens are not the only ones threatened by climate dangers. A recent article in The New York Review of Books, "The Crash to Come," notes that insurers such as State Farm are withdrawing from regions like California due to the growing risk of climate-related disasters. This retreat is not just a crisis for homeowners but a signal of a deeper economic instability. The U.S. housing market, valued at $47 trillion, faces a climate risk bubble that could burst, causing widespread economic fallout.

Once enablers of dreams, insurance firms are now arbiters of harsh realities. Their withdrawal marks the beginning of a seismic shift in the financial landscape whose ripple effects from this will likely be felt across the nation.

See also: The Evolving Threat of Wildland Fire

Effects on the Business Community

On the business front, the next few years are expected to see substantial growth in industries directly affected by agricultural production fluctuations. Ethanol and biodiesel plants, flower processors and canning operations are just a few examples of businesses facing significant risks due to climate change.  Local processors, transporters and warehouses depend heavily on the consistent production of local crops, which can be undermined by an unexpected frost or a severe spike in temperature. A shortfall in crop production can lead to significant business disruptions across supply chains and reduced revenues.

Indeed, one significant yet underappreciated issue is the shift in cropping patterns. Traditional crops like soybeans, once limited to warmer climates, are now being grown in colder regions. However, these new areas often lack sufficient federal crop subsidies, creating a financial gap for farmers venturing into these new agricultural frontiers. 

Parametric Insurance for Today’s Risk Landscape

Each challenge to people, property and businesses, underscores the need for adaptable and responsive risk mitigation solutions that keep pace with the changing climate and its assorted impacts. Parametric insurance offers swift and accurate payouts based on objective data sources, which make it a versatile and responsive tool for businesses and financial institutions looking to manage their climate risks preemptively.

Moreover, parametric insurance allows for a greater web of protection beyond asset owners. Thus, one could imagine creating a government-funded index for, say, the urban poor who depend on a certain crop for their sustenance. Although they are not asset holders, parametric insurance can take into account the indirect effects of bottlenecks further up the supply chain. 

Likewise, in the real estate sector and urban planning, parametric insurance can be a game-changer. Advances in remote sensor technology and climate modeling mean it is, possible to create more robust predictive models that show prospective clients a comprehensive view of the risks they face. And in places such as Florida, where it can be tough to acquire traditional insurance for roofs due to the threat of hurricanes, parametric insurance can be used to fill the protection gap. With payouts based on specific wind speeds or rainfall amounts, property owners can quickly recover from damages, alleviating the long wait times and uncertainties associated with traditional claims processes.

The same is true for businesses, particularly those dependent on complex supply chains. Parametric coverage offers a way to mitigate the financial impact of unpredictable climatic events by making it possible for a company to receive a payout if a key region is hit by a natural disaster, which can cushion the blow from supply chain disruptions.

In essence, parametric insurance provides a proactive risk management tool that complements traditional insurance models. It enables businesses and communities to respond more effectively to the challenges posed by climate change, safeguarding assets and ensuring continuity in the face of environmental uncertainties. If we want to be serious about fostering resilience and adaptability in an era marked by escalating climate risks, it behooves us to make parametric insurance an essential component in our risk management toolkit.

KEY TAKEAWAY:

--From the insurer’s perspective, AI technology can be used to quickly score claims and provide a detailed explanation of a claim’s severity from its initial report. AI can assign that claim to an adjuster with the appropriate level of experience. It can also triage the case to professionals who have worked with these types of claimants and patients before.

--For risk managers, AI provides a secondary, 24-hour set of eyes on claims constantly looking for patterns enabling managers to put resources and ancillary services to work where they can make the most difference. In many cases, these AI tools inform you if, when and how you need to prepare for litigation. Additionally, you can use AI for reserving to help predict the cost of certain claims and determine how that cost affects employer deductibles and deductible programs. These AI risk management capabilities help risk managers curb costs, reduce liability and shorten the claim duration on the employer side.

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Workers' compensation claims pose challenges for all involved, especially risk managers who handle multiple claims simultaneously, set expectations and serve as the crucial point of contact among all parties. While they juggle the legal details, state-specific regulations and other data-driven aspects of the workers’ comp lifecycle, it becomes increasingly challenging for risk managers to effectively manage the people side of the equation. This can lead to claimants feeling underserved and underappreciated and more likely to sue the organization. 

Fortunately, emerging technologies such as artificial intelligence (AI) are beginning to address this risk management challenge, making it possible to optimize claim processing and triage at scale and in real time. AI can improve claims management while alleviating some of the burdens faced by risk managers. However, it’s essential to recognize that AI is not the sole solution. The key lies in integrating people-focused strategies with AI advancements.

By leveraging AI to streamline certain processes, risk managers can free up valuable time and resources. This newfound bandwidth allows them to prioritize an important aspect of their role: developing a comprehensive return-to-work program. This program, when combined with thoughtful consideration of the injured worker's needs and the requirements of employers, ensures both efficiency and empathy in managing workers' compensation claims.

Challenges Faced by Employers and Risk Managers

In my career, I’ve developed multiple perspectives on workers’ compensation by working as a claims adjuster, supervisor and risk manager. I was lucky to have supportive supervisors and mentors along the way who guided me from the most simplistic claims in the very beginning of my career to tackling the very complex as the years went on. I later shifted to the role of risk manager, which presented me with many new challenges:

• Limited File-Level Control: Risk managers often have little to no control over claimant files and how they are adjusted, yet they are the stand-between and the main communicator for both the adjuster and the company.
• Regulatory Compliance Requirements: Maintaining strict adherence to rules and regulations is essential to avoid unnecessary claims. If companies have frequent or large claims, their workers’ compensation insurance premiums can increase.
• Stakeholder Management: Risk managers must constantly keep up with, listen to and deal with the demands of all important stakeholders, including finance, operations, legal counsel, state workers’ comp boards, employee advocates and unions.
• Data Challenges: Handling a large volume of claims can be daunting. A risk manager might request a file review of around 200 files and give the adjuster 30 days to prepare for that task. However, as the process unfolds, these files may change significantly, for better or worse. It’s difficult to manage a large number of claims without accurate, real-time data.

See also: Why to Self-Fund Workers' Comp

While working through these challenges, I found myself in a tug of war with the multiple demands of my stakeholders, third-party administrator (TPA) and injured workers. Although the job was demanding, it was important to make room for the personal touch, which can make a significant difference when working with injured workers.

The Risk Manager’s Role in Return to Work and Employee Experience

It’s stressful to be an injured worker, especially if your job is changed or limited during your claim. While risk managers can't totally eliminate that stress and uncertainty, there are certain steps they can take and tools they can use to clarify return-to-work expectations, keep claimants engaged and feeling part of the team and build a healthier workers’ comp culture.

For improved return-to-work results, fewer legal issues and a happier workforce, risk managers should follow these three key steps:

1. Ensure accessible care is available to all claimants. Provide direct care options when your state allows it, but if that’s not possible, diligently provide claimants with as much care information as possible. Advocate for more doctors and clinics in your workers’ residential areas so they have accessible care options.
2. Develop a triage or advocacy program. Implement programs or employee applications that set clear expectations for claimants and show empathy for their situation in the earliest days of their claim. Armed from the beginning with more information about their particular situation and how it affects their employment, claimants are more likely to feel cared for and remain with the company.
3. Circle back post-claim. After claims are processed and employees return to work, follow up with them to get their feedback through surveys or apps that provide informal touch points. The focus of this survey is limited to compensable claims.  A claim that was denied would not be eligible for the survey. If they are unhappy with the outcome of their case, you’ll be able to identify and address any issues quickly to avoid litigation. 

Leveraging AI Technology to Optimize Workers’ Comp Workflows

Most risk managers do not have much time or the tools they need. However, a number of new AI solutions and risk management platforms are filling the gap, enabling risk managers to maneuver the workers’ comp workflow more intelligently.

From the insurer’s perspective, AI technology can be used to support better claim identification, classification, predictive analysis and automated claim assignments. For example, several AI tools now support a first report of injury model, quickly scoring claims and providing a detailed explanation of a claim’s severity from its initial report. From there, AI can segment that claim and assign it to an adjuster with the appropriate level of experience. It can also triage the case to professionals who have worked with these types of claimants and patients before. Using AI gives the insurance company or TPA more data and real-time knowledge from the outset, enabling it to process claims more quickly, with more context and at greater scale.

For risk managers, AI provides a secondary, 24-hour set of eyes on claims constantly looking for patterns enabling managers to put resources and ancillary services to work where they can make the most difference. In many cases, these AI tools inform you if, when and how you need to prepare for litigation, indicating which cases have certain levels of risk or fit patterns from past legal cases. Additionally, you can use AI for reserving to help predict the cost of certain claims and determine how that cost affects employer deductibles and deductible programs. These AI risk management capabilities help risk managers curb costs, reduce liability and shorten the claim duration on the employer side.

See also: Impact of PTSD on Workers' Comp Costs

Balancing AI Advancements With a Personal Touch

As the insurance industry grows increasingly complex, the demands for better and more accurate claims management have increased. Traditionally, risk managers have not had the resources or time to support the insurer in their work, but with recent AI-powered claims management solutions and the detailed, real-time information they provide, risk managers can reduce the need for frequent file reviews while automating and streamlining data and compliance management responsibilities.

More importantly, AI allows risk managers to devote more time to the human aspect of workers’ compensation. By prioritizing employee care and experience, which is really the most important piece of the risk management puzzle, organizations can mitigate the likelihood of legal action and employee turnover. When employees feel genuinely supported and valued, they aren’t likely to sue their employers or leave the company.

KEY TAKEAWAY:

--The first wave focused heavily on upgrading customer experience by emphasizing digital channels, data analytics and user-friendly interfaces. But there remains ample room for further improving specialty lines, embedding insurance into transactions, closing protection gaps and streamlining workflows for agents and brokers.

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The insurance industry is a pillar of the global financial system, with over $10 trillion in premiums written annually. This vast market has been dominated by large, established players for decades. However, the emergence of insurtech startups over the past 10 years aimed to leverage technology to disrupt incumbents struggling to adapt.  

Many predicted these startups would rapidly overhaul old-line carriers. But the first wave of insurtech taught the valuable lesson that innovation builds on traditional fundamentals rather than replacing them outright. While they did not revolutionize insurance, early insurtechs made the case for incorporating advanced technologies into the future. While there has certainly been disruption in insurance in the past decade, there are still many hard problems to solve in the industry, and incumbents have proven to be more resilient than many initially thought.

The first wave focused heavily on upgrading customer experience by emphasizing digital channels, data analytics and user-friendly interfaces. But there remains ample room for further improving specialty lines, embedding insurance into transactions, closing protection gaps and streamlining workflows for agents and brokers.

Key Lessons From the Evolution of Insurtech

1. Incremental Advancements: The first wave of insurtech didn’t revolutionize the industry but made vital strides in better customer service, signaling a gradual transformation.
2. Digitalization Imperative: Insurtech v1.0 effectively conveyed the inevitability of digitization to key stakeholders, paving the way for venture-backed companies. However, exit metrics of some ventures might seem underwhelming.
3. Fundamental Importance: Revolutionizing insurance requires more than technology; startups must understand and align with fundamental insurance basics. It’s a bottom-line industry where loss ratio and risk capacity play pivotal roles.
4. Valuation Challenges: Valuing early insurtechs was complex. Generous valuations based on growth metrics faced scrutiny as underperformance in public markets raised questions about the accuracy of top-line metrics like EV/GWP/revenue. Understanding market specifics is crucial for accurate valuation.

As the hype cooled, insurtech valuations faced more scrutiny. Investors shifted from rewarding growth potential to analyzing defensible moats and sustainable unit economics. Unlike traditional software companies, insurtechs face inherent loss volatility and intense competition, resulting in lower gross margins challenging software-style premium multiples. Future valuations will require assessments beyond top-line growth to accurately gauge quality.

See also: Insurtech Startups Are Doing It Again!

Emerging Opportunities in Embedded Insurance

Embedded insurance seamlessly integrates coverage into a user journey for a non-insurance product. This concept has existed for years but is accelerating with mobile adoption and application programming interfaces (APIs). Research predicts the total addressable market will rise from $63 billion currently to nearly $500 billion by 2032, representing a 23% CAGR.

Early successes have come in extended warranties, travel insurance and auto coverage. Apple’s warranty cross-selling generates an estimated $8 billion annually, demonstrating embedded insurance’s revenue potential. These simpler products allow straightforward bundling into existing purchases.

As more buying shifts online, embedded products can flourish by gaining consumer trust. Companies managing this integration have the chance to meet their customers’ coverage needs. While still early days, embedded insurance shows promise to expand insurance accessibility.

Some fundamental questions to answer are:

• Value Chain Dynamics: Key questions include identifying the primary beneficiary in the value chain — whether it’s the distributor, incumbent or embedded participant.
• Regulatory Scrutiny: Regulators will examine how regulators will approach new insurance offerings, especially those delivered online or through mobile devices.
• Monopolistic Trends: There must be an exploration of potential monopolistic bargaining power within distributors and whether the market can accommodate multiple embedded products.

Strategies for Closing the Global Protection Gap 

Insurance coverage globally falls severely short of total insurable risk exposure, leaving a protection gap of $1.8 trillion, by some estimates. Shortfalls are most acute for catastrophe, mortality and healthcare perils.

Though not a complete solution, embedded insurance can help close gaps by meeting customers where they are. Travel insurance penetration expanding from 24% to 50% would generate over $70 billion more in annual premiums. Similar opportunities exist across insurance lines for creatively addressing unmet needs.

Modernizing Specialty Insurance 

Specialty insurance delivers targeted coverage for unique exogenous risks facing individuals and businesses. It makes up over one-third of all commercial premiums. The market’s size and complexity have insulated it from disruption.

But specialty lines often contain antiquated products, inefficient underwriting and fragmented distribution. These challenges create openings for innovation. Integrating lessons from prior insurtech waves with specialty’s nuances offers a road map.

Opportunities exist to leverage data and alternative sources to develop more tailored specialty products. Automating underwriting can also substantially trim processing timelines and costs. Agents and brokers will maintain import roles but face pressure to adopt technologies improving customer experience.  

Categories such as medical malpractice, long-term care, cyber and climate risk seem especially ripe for solutions boosting efficiency, expanding capacity and bridging information asymmetry.  

See also: The Next Wave of Insurtech

Streamlining Workflows for Agents and Brokers

Agents and brokers remain indispensable distribution partners in commercial and specialty insurance. They aim to provide consultative services while growing customer bases and maximizing retention. Many agencies still rely on manual processes that constrain expansion and boost expenses. Several insurtechs target this problem by offering workflow automation for faster quoting, expanded risk appetite and increased placement precision.

Targeting individual pain points in isolation has limitations, however. True transformation requires integrated platforms spanning customer-facing and back-office functions. This complete solution raises the technological bar across the entire value chain. Insurtech's next wave will see carriers, agents and startups collaborating to embed specialized coverages within transactions while also streamlining antiquated business practices. Leveraging expanded datasets and process automation can unlock growth opportunities too costly to pursue through traditional methods.  

Insurtech’s evolution has built on insurance fundamentals while intelligently incorporating technology. Succeeding will require pragmatism in solving problems all sector participants face in risk assessment, preference matching and delighting customers.

For more on this topic, here are two much more detailed looks at the history of insurtech and at the next wave: A timeline of the last 100+ years in Insurance in the U.S. (Part I) and The next wave of Insurtechs (Part II)

Business owners are often asked, “What keeps you up at night”? Depending on the business, their responses are numerous. In agriculture, weather is often the response. Farmers and agribusinesses worry about weather and the increasing frequency and severity of weather events that cause billions of dollars of crop damage and economic loss annually. Farmers alone have incurred on average just under $9 billion in annual loss recoveries over the last 10 years. 

While farmers and agribusinesses share a threat from drought, excessive moisture, windstorm and other weather events, their risk management strategies for managing weather risk are notably different. Why? Let’s start with a brief risk management 101 discussion.  

See also: Property Underwriting for Extreme Weather

When managing risk, we have three choices. We can avoid the risk, retain the risk or transfer the risk through insurance.  

1. Avoiding the risk is frequently not an option, as it is at the heart of why the farmer and agribusiness exist (i.e., farmers grow a crop, and agribusinesses sell a product or service to a farmer).  

2. Retaining the risk is a choice but requires a comprehensive understanding of the risk and consequences for each  agribusiness organization.  

3. Transferring risk, particularly when catastrophic exposure exists, is customary for commercial enterprises. Insurance, used as a risk transfer or for risk sharing, is a fundamental economic tool used by most businesses to secure capital and to protect against catastrophic economic loss, including weather that can devastate a business. 

Farmers and ranchers extensively leverage the federally subsidized Federal Crop Insurance Program to protect their production and revenues from loss due to weather events.

Agribusinesses, on the other hand, retain significant risk exposure for their own lost revenues caused when farmers and  ranchers don’t purchase their products and services due to weather-related crop loss. 

Farmers and agribusinesses share exposure to catastrophic weather events, but their risk management strategies are quite different. Moreover, agribusinesses face concentrated exposure for potential loss of their product and service revenues for corn and soybean crops in just five of the largest corn- and soybean-producing states. These five contiguous states represent roughly 60% of corn and 40% of soybean production. 

So how do agribusinesses manage weather risk? Agribusinesses can partially manage catastrophic weather exposure through  geographic diversification. Geographic spread of products and services can help to reduce the impact of a significant weather event. But is that enough?  

See also: Risk Management for Agriculture

Recent weather events, such as in 2019 when over 20 million acres of prevent plant occurred across portions of the Midwest, or 2020 when a “derecho” storm damaged crops along a 50-mile-wide path from South Dakota through Ohio, created  significant loss to agribusinesses from loss of input sales, replant guarantees and excessive usage of rental equipment. Because the derecho hit the Midwestern states, this single weather event created catastrophic loss to even large agribusinesses selling products and services to farmers and ranchers. Additionally, these types of events create significant risk to lenders’ revenues and balance sheets when they have exposure to operating and business loans to affected agribusinesses. 

So, while farmers and ranchers have crop insurance to manage their risk, what insurance alternatives exist for agribusinesses? Until recently, very few insurance options existed to protect agribusinesses’ revenue from weather-related losses on their farmer and rancher product and service sales. There are currently two types of insurance products to protect agribusiness revenues and balance sheet risk – parametric and basis risk insurance. 

Parametric insurance (or index-based insurance) provides coverage on a predetermined weather event vs indemnifying for  actual loss occurred by the insured. The para metric insurance policy insures a policyholder against the occurrence of a predefined event by paying a set amount to all insureds in the covered area, regardless of whether an actual l oss occurred  to an insured. The advantage of this type of insurance is the simplicity of the program and the generally lower cost. The  disadvantage is that some insureds who did not suffer any loss may be paid because the predetermined event occurred.  On the other hand, some insureds who suffered loss may not be paid, because the specific, predetermined event did not occur. This type of policy, under the Federal Crop Insurance Program, is known as an index policy. An example is the pasture, rangeland and forage insurance policy. 

The other type of insurance is “basis risk” insurance. Each field location is insured specifically. and the amount of  coverage, perils insured against and damage assessment occurs at the field level. This type of insurance matches specific risk exposure and loss payments to an insured’s specific location for actual loss incurred. This type of policy, under the Federal Crop Insurance Program, is known as an individual yield and revenue policy. Examples include the crop revenue coverage or revenue assurance policy. Basis risk insurance policies provide the best-alignment between risk exposure and coverage specific to the insured location and actual loss experience.  

While few weather risk insurance options were historically available for agribusinesses, innovative technologies, more granular data and specialized risk management solutions are now available. Agribusinesses, like their farmer and rancher customers, now have new insurance tools to help manage the frequency and severity of weather event risk and protect their revenue and balance sheet exposures. 

KEY TAKEAWAYS:

--Insurers must price risks more accurately, or they will lose their low-risk customers -- those with the highest lifetime value. That means moving beyond proxies such as age, credit history and gender and using actual driving behaviors. 

--Many insurers have avoided using telematics data because they don’t want a monitoring period that requires them to wait until they’ve collected sufficient driving data to price accurately, but monitoring periods are no longer required.

--While the insurance industry has made strides in using telematics for upfront discounts, insurers can also communicate with customers about their driving during the term of the policy and can improve renewal pricing to increase loyalty. 

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Holiday shopping is in full swing, and customers aren’t just tracking down gifts for family and friends. They’re also hunting for better rates on their car insurance. In fact, auto insurance shopping has hit record highs over the past three years as more drivers consider switching carriers in search of cheaper premium prices.

For drivers, the holidays and winter months mean snowy, icy roads, dangerous conditions and heightened risk while driving. For insurers, winter adds another slippery layer to their profitability challenges. As insurers increase premium prices to offset heightened losses, customers are reaching a point where they can’t afford their auto insurance.

It’s a perfect winter storm, and insurers that can’t find better ways to attract and retain customers will be left out in the cold. 

Improving retention starts with a better understanding of drivers' behavior and a better way to estimate the lifetime value of customers. There’s more available data than ever about how people drive, walk, bike and use other forms of transportation — and if insurers know how to use it, they can reverse customer defections and turn data into the gift that keeps on giving. 

See also: Auto Insurance in an Existential Crisis

Insurers need a better way to retain customers

In today’s highly competitive market, insurance companies can’t respond to inflation and other market pressures by simply raising premium rates across the board. That’s a surefire way for insurers to continue to lose even more customers in the new year – especially those high-lifetime-value customers (i.e., lower-risk customers) insurers need to keep on their books. 

Instead, insurers need to price customers more accurately and fairly to create predictable insurance outcomes, improved loss ratios and more profitable decisions for their bottom line. 

What’s stopping companies from achieving these goals? 

The answer comes down to the traditional approach to assessing and pricing customers. Many insurers have relied on proxies — such as age, credit history and gender — to evaluate customers and predict the likelihood and cost of accidents.  

Although these metrics provide upfront information to predict risk, proxies often fall short in delivering the pricing accuracy insurers hope to achieve. That’s because they fail to provide visibility and accurate predictions of actual driving behavior on the road. 

Insurers that rely too heavily on proxies often make incomplete assessments about drivers that can lead to underpricing of unsafe drivers and overpricing of safer ones. It doesn’t make sense to charge a safe 20-year-old driver more than a middle-aged driver who speeds and texts while driving.  

These decisions aren’t just unfair for drivers, they’re bad for business. It’s time for insurers to move beyond proxies and take a smarter, more strategic approach to customer pricing, renewals and retention. 

How insurers can gain more from telematics data

The best way to price customers and determine risks on the road is by evaluating a customer’s real driving habits. By focusing on actual driving behaviors, insurers can achieve better pricing accuracy and sophistication, driving improved customer retention and greater customer lifetime value. 

But until now, there’s been a significant gap when it comes to understanding and analyzing driving behavior. Today’s telematics data — sourced from smartphones, in-car devices and connected cars themselves, with user permission— helps fill this gap by offering enhanced visibility and precise insights into driving habits. This information is more reliable, relevant and comprehensive than ever before. 

As insurers work to gain and retain customers, they also need to extract more value from data; here are three ways they can do it:

1. Derive deeper, more meaningful insights

There’s more data collected on driving behavior than ever. The challenge is translating this information into meaningful, contextualized insights. Today’s telematics data doesn’t just capture how people get from point A to point B. It offers a depth and breadth of insights, such as when someone speeds or constantly slams on the brakes, when they switch routes and drive on unfamiliar roads and contextual information like the speed limit of roads traveled and weather conditions they’re driving in. 

Imagine how these insights can be applied to holiday travel. While we know the holidays bring higher levels of traffic and a higher number of crashes, data from Arity shows that drivers are more likely to speed home following Thanksgiving and Christmas days. Armed with this information, drivers could be encouraged to avoid traveling during these times or be extra attentive on the road. 

Likewise, auto insurers could encourage drivers to make safer holiday travel plans by providing feedback and coaching and rewarding them with reduced policy deductibles for safe driving behavior, especially around the holidays and during winter months. 

2. Access and analyze real-time information

Many insurers have avoided using telematics data because they don’t want a monitoring period that requires them to wait until they’ve collected sufficient driving data to price accurately. That’s no longer the case. Insurers today can access data at a faster pace to gain insights that are reliable, relevant and responsive to conditions on the road. 

This approach empowers insurers to price confidently and instantaneously. Insurers that take into account data about driving behaviors at the quote stage can eliminate the need for monitoring periods and pricing adjustments down the road. 

By leveraging real-time information and insights, insurers can accurately price customers based on their actual driving and respond to shifts in frequency and severity to offer fair, competitive rates. Safe drivers can be offered a discounted rate, while risky drivers can be encouraged to drive safely using a tangible reward like a future discount or a penalty such as a higher premium that reflects their higher risk.

The same data can be used to price existing policyholders at renewal. Instead of using the proverbial peanut butter approach of spreading higher premiums across the board, why not use actual driving behavior insights to determine which policyholders deserve higher rates and which don’t? With this sophisticated renewal approach, insurers are more likely to retain their best drivers. 

3. Strengthen telematics’ scale and sophistication 

There’s been a lack of telematics data available at the scale necessary to deliver tangible value to insurance companies. That’s starting to change. Advancements in data analytics are making telematics more accessible, more feasible and more useful in understanding and predicting driving behavior at an unprecedented scale. 

While the insurance industry has made strides in using telematics for upfront discounts, insurers need to scale usage across the entire value chain. With greater scale and sophistication of telematics data, insurers can forgo offering a generic participation discount and, instead, target customers with competitive rates, as well as improve renewal pricing for existing customers to increase loyalty. 

A large-scale telematics database can also help insurers market to and convert high-potential lifetime value customers. In addition, it can improve crash and claims processing — providing value and savings for longtime customers, new policyholders and prospective customers alike.

See also: Setting Record Straight on Auto Claims Severity

Pricing people based on how they drive, not who they are

Winter won’t last forever. Neither should the exodus of customers leaving their carriers. With better telematics data — and better ways to leverage it — insurers can move beyond traditional proxies and price people based on how they drive, rather than who they are, where they live or what their credit score is. 

This is now possible with telematics data available at scale, with no monitoring periods.

Insurers can’t control ice on the roads or snowy conditions. But they can navigate the challenges of winter driving by embracing telematics to improve customer pricing and retention and avoid leaving customers in the cold. 

In the midst of a profound transformation in the workforce landscape, characterized by a major shift toward decentralization, incentives have never been more pivotal in engaging and motivating employees. Four key incentive trends emerge as focal points, each contributing to the overarching goal of driving performance and cultivating a positive work environment as organizational structures shift to a more distributed and autonomous model.

Let's unravel these trends to better understand how they are influencing the dynamics of modern workplaces.

Emphasis on Personalization

The new wave of decentralized workforces has emphasized the need for personalization in incentive strategies. With the traditional confines of office spaces fading away in favor of more remote and flexible work setups, human resources professionals are establishing incentive programs that extend beyond conventional rewards, Based on the diverse and individual preferences of employees, programs embrace tailored learning and development initiatives crafted to align seamlessly with specific career goals.

The inclusion of curated experiences, ranging from virtual workshops to wellness activities, demonstrates a commitment to addressing personal interests. As this trend gains momentum, its significance lies not only in boosting engagement levels but also in cultivating a work culture that champions inclusivity. By acknowledging and catering to the unique motivations of each employee, organizations are fostering a more holistic and adaptive approach to workforce management, leading to increased job satisfaction and a sense of belonging within the decentralized work landscape.

See also: Why to Customize Employee Healthcare Plans

Wellness-Centric Incentives

The decentralization of work has not only transformed where and how work is conducted but has also propelled employee well-being to the forefront of organizational priorities. As traditional office structures evolve into flexible and remote work arrangements, the harmonious relationship between a healthy, motivated workforce and overall productivity becomes increasingly evident.

This shift has prompted an emphasis on wellness-centric initiatives. Beyond the realm of traditional cash incentives, companies are integrating non-cash perks such as wellness subscriptions, mental health resources and contributions to home office designs. This multifaceted approach goes beyond the conventional focus on financial rewards, acknowledging the connection of physical and mental well-being with professional performance. Organizations improve job satisfaction and increase long-term employee retention.

Strategic investment in employee welfare reflects an organizational commitment to creating a supportive and nurturing work environment, which, in turn, establishes a solid foundation for sustained success and growth.

Recognition in a Virtual World

The digital era demands a reinvention of employee recognition strategies. Organizations are strategically adapting by harnessing the power of digital platforms to design and implement peer-to-peer recognition programs, virtual celebrations of milestones and interactive platforms for acknowledging achievements.

Such components not only address the inherent challenges posed by remote work scenarios but also foster a positive and engaging work culture. By ensuring that the remote workforce feels consistently appreciated, companies not only enhance morale and motivation but also fortify the sense of belonging and connection among team members.

See also: Opportunities in Group and Voluntary Benefits

Flexible and Inclusive Reward Structures

Organizations are embracing the implementation of flexible reward structures that can skillfully accommodate the diverse needs and preferences of their employees, whether in the form of personalized gift cards, curated experiences or the valuable currency of additional paid time off.

By providing a menu of options, organizations can ensure that their incentive programs are not only relevant but also deeply meaningful to individuals. 

As organizations navigate the challenges and opportunities presented by decentralized workforces, staying attuned to trends in incentive strategies is crucial. Embracing personalization, prioritizing wellness, reinventing recognition in the virtual realm and adopting flexible and inclusive reward structures are key elements in creating effective incentive programs that resonate with the modern workforce.

By aligning incentive strategies with the evolving nature of work, organizations can foster employee engagement, boost morale and position themselves for success in the decentralized future of work.

There’s plenty of evidence that insurance transformation has failed across the board.

Despite £100s of millions invested in IT, insurers have been unable to shrug off the baggage of their legacy systems. Instead of greater freedom, digitization has led to the shackles of modern legacy. This makes rapid adaptation at scale impossible, as complexity and a reliance on suppliers plague insurance infrastructure, making every change long-winded and costly.  

The results are plain to see. Insurer profits have been hit by myriad headwinds, leaving them little room to maneuver, save for slapping consumers with extreme price increases. That might be forgivable if the consumer experience had improved, but tech-savvy consumers who expect the control and transparency of fintech-like experiences have been left severely wanting. 

It isn’t hard to see why "transformation" has become a bit of a dirty word. Why would you want to commit more budget and resources when the promised land of your last heavy tech investments has yet to be reached?

Insurance, however, doesn’t have a choice. It must transform or fade away. The good news is the sector is only one transformation away from never having to worry about technology again.

Why Has Transformation Failed

Let’s first look at what’s led us here. Transformation and technology are often treated as synonymous, but technology isn’t where transformation begins, nor should it be.

Transformation starts with a vision for where the business wants to go. Typically, that vision is driven by a desire to leverage the latest tech to achieve greater scale, while reducing effort and costs. 

While there’s nothing fundamentally wrong with this approach, it becomes problematic when the technology and the operational model you're building on no longer serve the business. This is the predicament insurers find themselves in. 

Certainly, short-term efficiencies through digitization, automation and cloud adoption are there for the taking. But the drive for efficiencies hasn't alleviated the pressure to change. To truly transform, and position itself for the future, the industry must first transform its operational mindset. 

This can only be done by looking outside the industry, where today’s transformations are predicated on achieving the continuous change needed to adapt quickly to the whims of the market, the economy and the consumer. 

See also: Tech Secret to a Combined Ratio Below 100%

The 2030 Insurer

When considering the insurance companies of the future, our CEO, CTO and I produced a list of characteristics that are present in industries such as ecommerce where transformations are mature. The characteristics are:

• Multiple products sold, priced and serviced together
• Access to services at every consumer touchpoint, e.g. web, mobile, car and point-of-sale 
• A unified experience for sales, service, payments, etc.
• Operating at the center of a broader supply chain, e.g. hospitals, repair shops and pharmacies
• Unrestrained, unique and compelling customer experiences driving differentiation
• Absolute ownership of customer relationships
• Endless product offerings, personalized, partnered or adjacent
• Instantaneous changes without downtime
• Real-time analytics and data science

All of these characteristics come from being built around a customer core that employs sophisticated data models to make every customer moment a data-driven and intelligent outcome. The core provides the ability to change in multiple places, while the value of that change appears everywhere it needs to.

In these transformed businesses, valuable data is constantly mined, structured and treated as a perishable asset that’s used when and where it's most valuable. Critically, adaptability allows new value to be identified and monetized via an ecosystem where IT is an enabler, not an inhibitor. Partnering is straight-forward, allowing insurers to act as a modular producer. 

Value is achieved by maximizing the knowledge of your customer, by your ability to act on it and by partnering effortlessly in an ever-evolving ecosystem. Happily, the dynamics at play have flipped. The technology is there, waiting for industrial mindsets to catch up. 

Every modern ecosystem driver architecture operates in a similar way, whether that’s Amazon or Tesla. Yes, microservices,  API-first, cloud-native SaaS and headless (MACH), but built in common ways within this. You'll often see reliable systems of record and “data stores” proliferate underpinning modern technologies, but at the core you'll need a customer and product engine capable of interacting with and creating intelligent customer and employee outcomes. 

In insurance, this is complex. If we want embedded, risk-mitigating and highly human-centric insurance outcomes, this complexity has to be dealt with. Working around it, by cobbling together point solutions through APIs onto policy-centric systems, frankly hasn’t worked.

When a system is built on a modern, digital-first architecture that puts the customer at its core, it reduces IT's reliance on suppliers by removing the complexity of change. It also creates extensibility, allowing the platform to connect and interoperate with a wide ecosystem of partners. Powered by customer data fluidity, this delivers ROI fast. An API’d new partner can typically apply all of their value back to an insurer in days or weeks, not months. 

Ultimately, the transformation goal is an ever-evolving ecosystem, the benefit being that there’s no need for a big-bang transformation project, constantly reliant on high-cost IT capability, bought or applied. 

Instead, the minimum viable organizational change is understood and worked toward, with the outcome being ever-increasing self-sufficiency and reducing core costs. 

We see ‌cost-per-policy plummet when servicing becomes digital, and the right fix or service is applied at the right time and in the right channel. Overlay this with reduced cost in IT change and new value generation massively increases, allowing for all sorts of cross- and upselling. 

See also: Why Are We Still Talking About Digital Transformation?

Taking Back Control

Control is vital in insurance. There is a balancing act between pooled books of insurance customers, their risks and the investment made with the capital earned. Maintaining this balance while driving toward adaptability requires a fundamental shift away from policy-centrism to customer-centrism.

Controlling and valuing a policy, then structuring an entire business around this idea has created unnecessary complexity. I'm not saying the concept of a policy isn’t useful. I am saying that ‌policy as a product should be constantly evolving and that an insurer's relationship with a customer supersedes the policy. To get there, technologies mustn't be built in silos. This is what avoiding modern legacy means.

Breaking free allows more control, not less. It leads to the development of propositions that help people build back better after a catastrophe. It offers connected and intelligent products built around usage and risk mitigation, or simply embedding insurance further into people’s lives. 

These new value paradigms are essential to the future of dynamic and highly adaptive insurance futures. However, to be workable, they must be built on modern technology foundations that serve these business outcomes rather than prohibit them. I believe this puts the insurer in a continuously evolving ecosystem model, and that is why Insurance is one transformation away from never worrying about tech again.

All of this may seem hard. Efficiency-driving agendas that do little to disrupt the cultural and operational status quo are easy to get behind. Fundamentally changing a core component of the business’s foundations is much harder.

However, the hardest aspect is ‌mindset change. When that happens, the technology is ready to facilitate it.

The (re)insurance industry has a long history of working on society’s hardest problems. Early involvement allows (re)insurers to go beyond simply diversifying risk – they can lead the way to new solutions and innovations by providing incentives to businesses and entire industries to do the right thing for everyone. 

The recent trend of increasing frequency and intensity of cat events is a top-of-mind issue, and true to form it is the international risk diversification community at the forefront of addressing it. However, there is one aspect of this phenomenon that is not yet widely addressed by (re)insurance: greenhouse gas (GHG) emissions, especially methane.

Solutions exist today that can deliver site-specific GHG information and data to the oil and gas, financial and insurance industries alike. Basin-level GHG monitoring, wellsite certifications, continuous emissions monitoring and more are available now across many of North America’s 20,000-plus wells. But (re)insurers are largely missing out. 

See also: Glimmers of Good News on Climate (Finally)

(Re)insurers need to understand that this is not just an opportunity to demonstrate environmental stewardship and leadership on a societal imperative, but it is also a way to offer more comprehensive coverage to oil and gas operators with more comprehensive risk assessments and loss control. These GHG strategies align with industry best practices for risk mitigation, everything a (re)insurer would want from their insureds.

Chubb is mandating that methane emissions and environmental responsibility become core aspects of their energy insurance. Others are wading into the issue, including Zurich and its exploration of methane emitted by cows. But the industry can do much more.

The forward-looking oil and gas operators implementing GHG reduction strategies are intrinsically the operators (re)insurers should cover with the most favorable terms for two reasons. First, an operator measuring GHG emissions carefully is a better risk. Then, after the policy is in place, emissions monitoring and measuring improves risk management and reduces claims. Within a few years, these types of operators might be the only operators that can get coverage at all because they will be the only ones with dependable data and information for underwriters, and they will be able to demonstrate adequate stewardship to satisfy ESG requirements.

If (re)insurers begin demanding well-specific GHG information and data, not only will they be improving their portfolios, but they will be taking their familiar position at the vanguard of helping solve another of today’s biggest issues.

Tech is revolutionizing the insurance industry by automating and enhancing efficiency, from customer onboarding to policy placement to claims handling. In fact, the global insurtech market was valued at $5.45 billion in 2022 and is poised for remarkable growth, as it's expected to expand at a CAGR of more than 50% from 2023 to 2030. 

But what are the forces driving this? 

There’s a vanguard of technological advancements, aka insurtech, driving unprecedented change in how insurance is conceived, developed and experienced: embedded insurance, customer-facing digital tools, telematics and the Internet of Things (IoT), reliance on rich data sets and AI and machine learning (ML). 

With these five insurtech trends in mind, let's discover what they are and how they'll redefine the insurance landscape in 2024. 

See also: Biggest Business Trends for 2024

Continued Emphasis on Rich Data Sets 

As more of the insurance industry relies on technology for greater efficiency and lower costs, there's a greater need for cleanly structured data for analytics and insights. 

As the promise of insurance data lakes escalates, the sourcing and completeness of data to fill the lakes is paramount to getting real ROI from the investment. Common data challenges, like missing, outdated or incorrect information, can result in an incomplete picture of a risk and flawed underwriting and pricing decisions. The data must be complete, validated and sometimes cleaned to support accurate analysis. 

In the insurance industry, issues arise when agents lack complete client data, hindering their ability to advise clients on pricing and coverage. For instance, correctly determining the industry classification, such as distinguishing between a barber shop and a beauty salon, is crucial, as it significantly affects insurance policies and premiums. 

To effectively support decision-making for agents in underwriting and application processes, as well as to fuel AI models, rich data sets demand accurately sourced and structured information. 

There are several ways for insurance companies to ensure their data is clean. One way uses third-party data validation and verification tools supplied from businesses such as Verisk, Fenris and HazardHub. A more accurate option is getting customers to validate data themselves by presenting them with information you’ve already collected and giving them an intuitive interface to review it. 

Leveraging data cleaning tools offers many benefits, such as data validation, reduced manual effort, removal of duplicates, precise risk assessment and improved customer service. Simply put, clean data enables better decision-making and fosters customer trust by ensuring accuracy and reliability in information handling. 

AI and ML-Driven Insights 

Once insurance companies have their rich data lakes full of accurate information, they can let AI and ML do all the hard lifting. AI and ML can analyze vast amounts of data from multiple sources, including historical claims data, customer information and external data from IoT devices, to enhance the accuracy of risk assessment. 

For example, predictive modeling, which uses an ML algorithm to process historical data, can help insurers better understand and predict risks, resulting in more precise pricing of policies. 

Moreover, automation and AI-driven chatbots can streamline the claims process, reducing the time and cost of claims handling, while image and text analysis can expedite claims assessment by quickly identifying relevant information and fraud detection. 

Large language models (LLMs) can also be leveraged for data extraction. Eric Sibony, co-founder and chief scientific officer at Shift Technology, told the Insurance Times that a significant use case for LLMs is "data extraction from unstructured data, [such as] free text and documents." While LLMs can be leveraged as chatbots and can generate emails and other generic documents, their data extraction tools can also be used to detect fraud and make personalized customer recommendations. 

Analyzing a broad scope of customer data through AI programs and tools allows insurance companies to gain deeper insights into their clients' preferences and behaviors, enabling insurers to offer more personalized services and policies. Furthermore, this information can drive personalized marketing and communication to improve customer engagement and retention. 

See also: Investment Outlook for 2024

Embedded Insurance 

As people’s time is precious, customers want ease and speed when buying insurance. But the current process is complex and time-consuming. 

To solve this pain point, insurance companies can now embed their offerings at the point of sale (POS) through application programming interfaces (APIs), allowing them to market their products exactly when customers need them. As we head into 2024, embedded insurance is expanding beyond travel insurance that you can purchase while buying flights or an all-inclusive package deal. 

Tesla was the first company to offer POS car insurance—made possible with the help of telematics. GM Motors also now offers its customers something similar. With these embedded solutions, GM and Tesla can also monitor customer driving patterns and behaviors, allowing them to alter monthly premiums and rewards for better driving. 

This trend not only enhances the customer experience but broadens the reach of insurance to new consumer segments, widening the market. 

Customer-Facing Digital Tools 

The popularity of embedded insurance highlights that, in 2024, businesses need to focus on a customer-centric approach to sell a product or service. 

This means building products and services with customer wants and needs at the forefront and making the buying, renewal and management process as simple and personalized as possible. In addition, because of industry regulation, many insurance products have become commoditized, which means the best way for agencies to differentiate is through a placement process enabled by advanced technology. 

By investing in easy-to-use mobile apps and online portals, online claims submission tools, smart form documents with e-signatures and telematic apps, insurance brokers and carriers can differentiate themselves from their competition by providing an exceptional customer experience. 

In fact, McKinsey reported that companies that use technology to enhance the customer experience can increase customer satisfaction by 15% to 20%. 

See also: 2024 Outlook for AI in Insurance

Use of Telematics and IoT 

The insurance telematics market is expected to grow from nearly $5 billion in 2023 to $11 billion by 2028. And the increasing adoption of telematics has been particularly fueled by the growing popularity of electric vehicles. 

Telematic devices can be used to monitor driving and collect data for the vehicle owner, facilitating personalized safety tips and delivering driver habit information. These days, companies like Allstate, GM and Tesla are also using this data to dynamically adjust insurance premiums. Furthermore, advanced telematics can also be used for real-time accident data and fraud prevention by analyzing factors such as hard braking, cornering or speeding during a specific period.

The development of the IoT has advanced the use of telematics, particularly for fleet management. IoT sensors can seamlessly integrate within a fleet management platform to quickly and efficiently mine and sort relevant data. This provides near-real-time visibility into key metrics, including fuel usage, engine status, vehicle location, driver behaviors and vehicle maintenance history. 

With this new in-depth data collection, carriers can make advanced underwriting decisions and design insurance products that better align with their policyholders’ needs. 

Wrapping Up 

As the countdown to 2024 picks up pace, these five key trends are poised to shape the insurance industry's trajectory. They mark a paradigm shift in how insurance is conceptualized, developed and experienced. 

These trends collectively underscore the industry's commitment to meeting the evolving needs of a tech-savvy clientele.